An Empirical Research On The Influences Of Margin Trading On Stock Market's Volatility

In China,margin trading has got rapid development since March 2010.However,the impact of margin trading on market's volatility did not reach a unanimous conclusion among the scholars.This paper argues that the margin trading restrains the volatility of the stock market from the angles of the underlying stocks and the market as a whole based on the existing literature.Firstly,using weekly panel data to discuss the gradual impact of the margin trading.The margin trading business of China has experienced five rounds of expansion policies,which provides good exogenous conditions of the application of the difference-in-difference model.A multi-period DID approach is used to check whether the stock market volatility increases.The empirical results of the first two expansion policies shows that the individual stocks' volatility is non-significantly higher.On the contract,the volatility is significantly lower based on the data of last two expansion policies.The next part of the empirical research discusses the different influence of financing and securities lending in a bull market and a bear market using the VAR model.The study shows that both financing and securities lending has played a certain degree of inhibition on the volatility of the stock market.Moreover,the impact of financing is bigger during bear market than in the bull market,while securities lending is more powerful in the bull market.The financing mainly support the stock price and retrains the fall of the market,and the securities lending brings down the rises of the stock price.Based on the above research,this paper argues that with the development of the margin trading business,the policy goal gradually highlights.But still it is necessary to further improve the system construction,and promote the balanced development of the financing and the securities lending business.